World Bank Document

Foreword
This is the eighth World Development Report. It observers thought possible when the recession
focuses on the contribution that international capi- was at its trough.
tal makes to economic development-a topical We are now in a period of transition-an essenissue
in view of the international concern with tial and intermediate phase before returning to
external debt over the past several years. While sustained growth and normal relationships
this Report pays close attention to the events of the between debtors and creditors. A successful transirecent
past, it also places the use of foreign capital tion will require continuing efforts by governin
a broader and longer-term perspective. ments, international agencies, and commercial
Using such a perspective, the Report shows how banks. All participants in the rescheduling exercountries
at different stages of development have cises of the past three years will need continued
used external finance productively; how the insti- patience and imagination to smooth out the hump
tutional and policy environment affects the vol- of repayments in the next five years, when about
ume and composition of financial flows to develop- two-thirds of the debt of developing countries falls
ing countries; and how the international due, and to place debt on a sounder longer-term
community has dealt with financial crises.
footing.
The financial links between industrial and devel- Stable and noninflationary growth in industrial
oping countries have become as integral to the economies is an essential component of a successworld
economy as trade has hitherto been. This ful transition. Policies that produce a softening of
growing interdependence is a development of pro- interest rates and an easing of protectionism
found significance. Just as governments recognize would facilitate the developing countries' resumpthat
their trading policies have international conse- tion of growth and the restoration of their credquences,
so they are starting to see that the same is itworthiness, without which they cannot get the
true of their financial policies. Their fiscal and extra capital that they need from abroad to promonetary
policies, rules on foreign borrowing and mote their development.
lending, and attitudes toward foreign investment How much they obtain will depend largely on
are not only components of domestic policy, they their success in restoring creditworthiness, which
also determine the efficiency with which world in turn hinges on the policies they pursue. A recursavings
are used.
ring theme of this Report is that the countries in
Nothing has better illustrated this new interde- debt-servicing difficulties are not necessarily those
pendence than the experience of the recent past. with the largest debts or those that have suffered
Expanded financial flows helped developing coun- the biggest external shocks. A country's ability to
tries to sustain high levels of investment and to borrow and service its foreign debt is largely detersmooth
structural adjustments. When difficulties mined by the quality and flexibility of its policies,
arose, individual governments, central banks, its ability to appraise and implement sound investinternational
agencies, and commercial bankers ment projects, and by good debt management.
have contributed to the task of stabilizing the Foreign finance is a complement to, and not a subworld's
financial system. Their approach has been stitute for, domestic efforts.
pragmatic, devising remedies according to each The same basic policy prescriptions apply to
country's difficulties. Their efforts have been com- every country. However, this Report highlights the
plemented by the very painful adjustment mea- particular constraints on countries in sub-Saharan
sures implemented by the debtor countries them- Africa. For the foreseeable future, most African
selves. More has been achieved than many countries will have to continue to rely on concesiii